Opinion 2021 Florida Ramos Charging Order Exclusive Remedy

 

Adkisson's

CHARGING ORDERS

The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership

 

2021 - Florida - Ramos - Charging Order Exclusive Remedy

 

Ramos v. Mississippi Real Estate Dispositions, LLC, 2021 WL 112763 (Fla.App., Jan. 13. 2021).

 

NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

 

District Court of Appeal of Florida, Third District.

 

Alvaro Gorrin RAMOS, Appellant/Cross-Appellee,

 

v.

 

MISSISSIPPI REAL ESTATE DISPOSITIONS, LLC, et al., Appellees/Cross-Appellants.

 

No. 3D19-2513

 

Opinion filed January 13, 2021.

 

An Appeal from the Circuit Court for Miami-Dade County, Jennifer D. Bailey, Judge, Lower Tribunal No. 08-36794.

 

Attorneys and Law Firms

 

Law Offices of Mendez & Mendez, P.A., and Sergio L. Mendez, Daniel J. Mendez and Lorena Friger, for appellant/cross-appellee.

 

Carlton Fields, P.A., and Jose A. Loredo and Rachel A. Oostendorp, for appellee Mississippi Real Estate Dispositions, LLC; Mark Pollack Law P.A., and Mark E. Pollack (Boynton Beach), for appellee/cross appellant Sunstate Bank.

 

Before SCALES, HENDON and MILLER, JJ.

 

Opinion

 

SCALES, J.

 

*1 Appellant, the judgment debtor below, Alvaro Gorrin Ramos (“Ramos”) appeals a December 20, 2019 order in proceedings supplementary (the “Order”) that requires cross-appellant Sunstate Bank (“Sunstate”) to pay the sum of $2,827,034 to appellee, the judgment creditor below, Mississippi Real Estate Dispositions, LLC (“Mississippi”), for Ramos’s membership units in a Florida limited liability company. We reverse because the Order provides Mississippi with a remedy not authorized by section 605.0503 of the Florida Statutes.

 

I. Facts

 

A. Proceedings Supplementary and the Charging Order

 

In 2005, Ramos and his son, Alvaro Gorrin, Jr., personally guaranteed $56 million in loans that Ocean Bank provided to two development companies to finance the purchase of rental apartments in Orange County, Florida, and to convert the apartments into residential condominiums. The projects were unsuccessful and spawned multiple litigations. In one of them, Poker Run Acquisitions, Inc. (“Poker Run”), which had purchased the Ramos/Gorrin, Jr. loan/guaranty package from Ocean Bank, sued Ramos and Gorrin Jr. for breach of the guaranties. In 2013, Poker Run obtained a total judgment against Ramos and Gorrin Jr. of approximately $30 million.

 

In February 2016, Poker Run initiated supplementary proceedings in aid of execution. Among other things, it sought execution against Ramos’s 41,085 membership units in Intercontinental Bankshares LLC, a multi-member limited liability company related to Intercontinental Bank (the “Membership Units”).1 The Membership Units were represented by Certificate 25.

 

fn1. Alvaro Gorrin Jr. holds 415 membership units in Intercontinental Bankshares, LLC that are subject to a charging order but are not at issue in this appeal.

 

In 2010, however, Ramos had pledged the Membership Units as collateral for a loan Ramos received from a friend in Venezuela named Romulo Alberto Moncada Yepez (“Yepez”). In December 2014, Ramos filed in the trial court documents memorializing the Yepez loan transaction, including a Unit Pledge Agreement, a Hypothecation Security Agreement and a Promissory Note. According to the Yepez loan transaction documents, the Membership Units that secured the loan are held by escrow agent Enrique Vejar Santos (“Santos”).2

 

fn2. In 2017, Poker Run filed a Third Amended Complaint in Proceedings Supplementary, seeking, among other things, to add both Yepez and Santos as proceedings supplementary defendants. Poker Run, though, was unable to obtain service on either Yepez or Santos and, on June 26, 2018, the trial court dismissed both men from the case. Hence, the trial court has no personal jurisdiction over Yepez or Santos.

 

Poker Run impleaded Intercontinental Bankshares LLC and, in May 2016, the trial court entered a charging order, constituting a lien against the Membership Units (the “Charging Order”). The Charging Order expressly states that its entry does not constitute an adjudication regarding priorities over any competing interests in the Membership Units. Then, in May 2018, Poker Run assigned its interests in the judgment against Ramos to Mississippi and Mississippi substituted into the case below as plaintiff/judgment creditor.

 

B. Sunstate and The Merger Agreement

 

*2 In March 2018, Sunstate entered into a merger agreement with Intercontinental Bank, the merger closing in August 2018 (the “Merger Agreement”). Sunstate was the surviving entity of the merger. Mississippi obtained an order amending the Charging Order and impleaded Sunstate, Intercontinental Bank and Intercontinental Bankshares LLC (the latter, after an earlier dismissal of it as a supplementary defendant).

 

The Merger Agreement authorized Intercontinental Bankshares LLC’s members to redeem their membership units and receive a cash payment from Sunstate. The Merger Agreement expressly provided that, to redeem their units for payment, holders of membership units (including Ramos) must transmit to an escrow agent the original certificate representing the membership units, along with a Transmittal Letter warranting that the membership units are free of encumbrance.

 

After being impleaded as a supplementary defendant, Sunstate filed a response stating to the trial court that it could not pay Ramos for the Membership Units until Ramos complied with the specific redemption provisions of the Merger Agreement – that is, Ramos must surrender the original Certificate 25 to Sunstate’s escrow agent together with the delivery of the required Letter of Transmittal. The trial court entered a September 2018 order that enjoined Clear Trust, LLC, the exchange agent for the merger of Sunstate and Intercontinental Bank, from disbursing funds to Ramos pursuant to the Merger Agreement.

 

C. The Turnover Motions

 

In November 2018, and again in February 2019, Mississippi filed a Motion in Proceedings Supplementary to Turnover Funds to Satisfy Charging Orders (the “Turnover Motion”). In these motions, Mississippi sought an order from the trial court requiring Clear Trust, LLC, on behalf of Sunstate, to pay the redemption proceeds for the Membership Units to Mississippi. On October 1, 2019, the trial court entered an order partly granting Mississippi’s February 2019 Turnover Motion. This October 1, 2019 order required Ramos to surrender the Membership Units and execute the Transmittal Letter. In response to the order, Ramos declared that he was unable to comply because he was not in possession of the original Certificate 25, having pledged the Membership Units, some nine years earlier, to Yepez as collateral for the Yepez loan. Mississippi then filed its third Turnover Motion, in which it asked the trial court to exercise its equitable powers under section 56.29(6) of the Florida Statutes3 and fashion a remedy to overcome Ramos’s inability to comply with the redemption provisions of the Merger Agreement.

 

fn3. In relevant part, this statute provides: “The court may order any property of the judgment debtor, not exempt from execution, or any property, debt, or other obligation due to the judgment debtor, in the hands of or under the control of any person subject to the Notice to Appear, to be levied upon and applied toward the satisfaction of the judgment debt. The court may enter any orders, judgments, or writs required to carry out the purpose of this section ... against any person to whom a Notice to Appear has been directed and over whom the court obtained personal jurisdiction ..., subject to applicable principles of equity ....” § 56.29(6), Fla. Stat. (2019).

 

D. The Order

 

On November 26, 2019, the trial court conducted a hearing on Mississippi’s third Turnover Motion and, on December 20, 2019, entered the Order. In the Order, the trial court found that Ramos, by pledging the Membership Units as collateral for the Yepez loan, “created the circumstances of his inability to comply with the requirements of the Merger Agreement.” The trial court, in reliance upon section 56.29(6), ordered Sunstate to remit to Mississippi the sum of $2,827,0344 to satisfy the Charging Order, irrespective of the redemption provisions of the Merger Agreement. Ostensibly to protect Sunstate from any claim by Yepez, the trial court also required Mississippi to post a $3,000,000 surety bond for a period of five years, and obligated Mississippi to indemnify and hold Sunstate harmless from any future claims related to the Membership Units. Both Ramos and Sunstate timely appealed the Order.

 

fn4. The Merger Agreement established this value of the Membership Units by dividing the total purchase price of membership units by the outstanding number of membership units to yield a “Per Share Consideration.”

 

II. Analysis5

 

fn5. We review a question of law arising from supplementary proceedings below de novo. Longo v. Associated Limousine Servs., Inc., 236 So. 3d 1115, 1118 (Fla. 4th DCA 2018).

 

*3 Ramos and Sunstate argue that, in fashioning its remedy benefiting judgment creditor Mississippi under the auspices of section 56.29, the trial court contravened the express limitations set forth in section 605.0503, which governs a judgment creditor’s rights with respect to a judgment debtor’s membership interest in a limited liability company. Mississippi counters by asserting that section 56.29 vests the trial court with broad equitable powers in proceedings supplementary and provides sufficient authority for the trial court to fashion the remedy prescribed in the Order. Given the facts of this case, we agree with Ramos and Sunstate that the trial court’s equitable powers to fashion remedies in proceedings supplementary are limited by the specific provisions of section 605.0503.6

 

fn6. Because we reverse on this ground, we do not reach, and express no opinion on, Sunstate’s argument that section 56.29’s authority for the trial court to fashion an equitable remedy in proceedings supplementary does not include the power to alter the express terms of a bilateral agreement, such as the Merger Agreement, when one of the parties to the agreement (Sunstate) is neither a judgment creditor nor a debtor. Additionally, while we are concerned that the Order might have affected the collateral securing the Yepez loan – a loan made before Poker Run’s judgment – because of our reversal of the Order on other grounds, we need not, and therefore do not, reach the issue as to whether the trial court’s lack of personal jurisdiction over Yepez and Santos provides an additional basis for reversal of the Order.

 

Section 605.0503 provides, in relevant part, as follows: “On application to a court of competent jurisdiction by a judgment creditor of a member ... , the court may enter a charging order against the transferable interest of the member ... for payment of the unsatisfied amount of the judgment with interest .... [A] charging order constitutes a lien upon a judgment debtor’s transferable interest and requires the limited liability company to pay over to the judgment creditor a distribution that would otherwise be paid to the judgment debtor.” § 605.0503(1), Fla. Stat. (2019). Critically, subsection 605.0503(3) further provides that the charging order authorized by subsection 605.0503(1): “...is the sole and exclusive remedy by which a judgment creditor ... may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distribution from the limited liability company.” § 605.0503(3), Fla. Stat. (2019) (emphasis supplied).7

 

fn7. Sections 605.0503(4) and (5) provide broader remedies to a creditor of a debtor who is a member of a limited liability company with only one member, but these sections are inapplicable because International Bankshares LLC is a multi-member LLC.

 

Florida’s courts have concluded that section 605.0503(3)’s “sole and exclusive remedy” language restricts courts from providing a remedy beyond the narrow scope of the permissible charging order authorized in section 605.0503(1). One such case – with clear echoes of the instant case – is Gorrin v. Poker Run Acquisitions, Inc., 237 So. 3d 1149 (Fla. 3d DCA 2018). There, Alvaro Gorrin, Jr. transferred most of his ownership in an LLC (not the LLC of the instant case) to a family trust after Poker Run filed suit on the Ramos/Gorrin, Jr. Ocean Bank guaranties. In proceedings supplementary, Gorrin, Jr. maintained that the transfer was for an estate planning purpose rather than for the fraudulent purpose alleged by Poker Run. Id. at 1152. The trial court granted both summary judgment and a charging order in favor of Poker Run against Gorrin Jr.’s interest in the LLC. Id. at 1153. In furtherance of the charging order, the trial court ordered that the “status quo be preserved as to all assets” of the LLC, which, Gorrin, Jr. argued, amounted to an unauthorized permanent injunction against the LLC. Id.

 

*4 This Court, emphasizing the limited remedy provided by the statute, held that the portion of the order freezing the assets of the LLC “exceeded the scope of that allowed under section 605.0503.” Id. at 1156; see McClandon v. Dakem & Assocs., LLC, 219 So. 3d 269, 271 (Fla. 5th DCA 2017) (reversing a portion of a charging order that, to give the charging order “teeth,” also appointed a receiver to take control of the LLCs’ finances); Young v. Levy, 140 So. 3d 1109, 1112 (Fla. 4th DCA 2014) (reversing the trial court’s garnishment order that required a multi-member LLC to disburse the LLC’s profits to a creditor, based on the “sole and exclusive remedy” provision of section 605.0503’s predecessor statute); see also Abukasis v. MTM Finest, Ltd., 199 So. 3d 421, 423 (Fla. 3d DCA 2016) (reversing a post-judgment order that transferred the judgment debtor’s membership units in an LLC to the judgment debtor).

 

Like the lower court orders reversed by the appellate courts in those cases, the Order in this case went beyond what section 605.0503(1) permits – that is, a charging order merely restricting Ramos’s alienability of the Membership Units and requiring that Mississippi be paid distributions otherwise payable to Ramos. While we are not unsympathetic to the trial court’s attempt to craft a fair and practical result in this difficult case, it is well settled that a trial court may not exercise its equitable powers to contravene statutory law. See State v. Hernandez, 278 So. 3d 845, 849 (Fla. 3d DCA 2019).

 

III. Conclusion

 

Section 605.0503(3) plainly states that the charging lien provided for in section 605.0503(1) is a judgment creditor’s “sole and exclusive remedy” regarding a judgment debtor’s membership interest in a multi-member limited liability company. Hence, notwithstanding the equitable powers vested in a trial court pursuant to section 56.29(6), we are compelled to reverse the Order because the relief provided therein to Mississippi exceeds the express scope of relief a trial court may afford a judgment creditor under section 605.0503(1).

 

Reversed.

 

RECENT ARTICLES

by Jay Adkisson

 

2021.06.17 ... Delaware Chancery Court Navigates Around Charging Order Exclusivity And Recognizes Reverse Veil-Piercing

2021.03.30 ... Some Random Musings About Single-Member LLCs Versus Multiple-Member LLCs

2021.03.27 ... Collateral Attack On Charging Order Via Federal Court Fails In Kerr

2021.02.21 ... Creditor’s Early Motion For A Receiver Gets The Kabosh In Medipro Case

2021.02.15 ... Debtor’s Large LLC Distribution To Circumvent Charging Order Draws Ire Of Non-Debtor Member In Bargreen

2021.01.19 ... Equitable Remedy To Circumvent Charging Order Exclusivity Denied In Ramos

______________

More Articles On Charging Orders click here

 

LAW REVIEW ARTICLES

by Jay Adkisson

 

For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):

 

Effect of Bankruptcy On The Debtor-Member's LLC Interest here

 

 

Collected Court Opinions On Charging Orders here and below

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

NATURE OF REMEDY

     Distributions/Economic Rights - Creditors rights to distributional interests/economic rights

PREJUDGMENT

     Prejudgment Relief - Freezing the interest and distributions pending judgment

MOTION MECHANICS

     Procedure - The procedure for obtaining a charging order and ancillary provisions

     Unknown Interest - Where the debtor's interest, if any, has not been ascertained

     Order Form Generally - Most issues to the form of the charging order

     Order Form Future Interests - How the charging order affects subsequently-acquired interests

     Exemptions - Available state and federal protections that may apply to charging orders

INTERSTATE

     Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute

     Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs

     Foreign Entities - Charging orders against out-of-state entities

CREDITOR RESTRICTIONS

     Creditor Rights Restrictions - Limitations on creditors' management and informational rights

     Information Rights - Creditors' ability to access information about the LLC

     Management & Voting Rights - Rights of creditor after charging order issued

LIEN EFFECT AND PRIORITY

     Lien - The lien effect of a charging order and priority issues

COMPLIANCE

     Compliance - Issues for the LLC and non-debtor members in complying with a charging order

     Receiver - The role of the receiver in charging order proceedings

SINGLE MEMBER LLC

     Single-Member LLCs - Enforcing the judgment against an LLC with a sole member

FORECLOSURE

     Foreclosure - Liquidation by judicial sale of the debtor's right to distributions

REPURCHASE AND REDEMPTION RIGHTS

     Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest

APPEAL

     Appeal - Issues relating to the appeal of a charging order

RELATION TO OTHER REMEDIES

     Exclusivity - The charging order as the sole remedy available to creditors and exceptions

     Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests

SUNDRY OTHER

     Abstention - Attempts to collaterally attack the charging order in federal court

     Bankruptcy - Treatment of the debtor/member's interest in bankruptcy

     Intra-Member Disputes - Where one member obtains a charging order against another

     Taxes - Tax issues relating to charging orders for all involved parties

 

= = = = =

 

Additional Court Opinions About charging orders (unsorted)

 

THE CHARGING ORDERS PRACTICE GUIDE

 

The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more

 

Available for purchase directly from the ABA at https://goo.gl/faZzY6

 

Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Creditor-Debtor Law - An overview of judgment enforcement tools and their uses by creditors, and possible defenses by debtors. Related topics include:

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business.

 

Contact Jay Adkisson:

 

Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only.

 

Newport Beach Office: 100 Bayview Circle, Suite 210, Newport Beach, California 92660. Ph: 949-200-7773, Fax: 877-698-0678. By appointment only.

 

Phone: 702-953-9617     E:Mail: jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain.

 

Social Media Contact: Twitter and LinkedIn

 

Admitted to practice law in Arizona, California, Nevada, Oklahoma and Texas.

 

Jay is a Managing Partner of Adkisson Pitet LLP.

 

© 2021 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.